Pan Pacific (NYSE:PNP)
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Pan Pacific Retail Properties, Inc. (NYSE:PNP), the
largest neighborhood shopping center real estate investment trust
(REIT) focused exclusively on the West Coast, today announced results
for the third quarter ended September 30, 2005. All per share amounts
are on a diluted basis.
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-- 7.9% increase in total Funds From Operation (FFO) to $39.5
million for 3Q'05 vs. 3Q'04(1)
-- 7.9% increase in FFO per share to $0.96 for 3Q'05 vs. 3Q'04(1)
-- Net income of $24.8 million for 3Q'05
-- Earnings per share of $0.61 for 3Q'05
-- $60.0 million grocery-anchored shopping center acquisitions
during 3Q'05
-- $30.4 million property disposition subsequent to 3Q'05
-- 97.0% portfolio occupancy rate at September 30, 2005
-- 3.9% increase in same-property net operating income for 3Q'05
vs. 3Q'04
-- 202 leases executed during 3Q'05, totaling 658,836 square feet
-- 19.5% increase in base rent on same-store new and renewed
leases for 3Q'05
-- 28.3% debt-to-total market capitalization ratio at September
30, 2005
-- 3.2 to 1.0 interest coverage ratio for 3Q'05
-- Credit rating upgraded to 'BBB+' by Standard & Poor's
-- $100 million of 10-year unsecured senior notes issued
-- $0.59 per share quarterly common cash dividend paid
-- 61.6% FFO payout ratio for 3Q'05
(1) See the end of this press release for a reconciliation of GAAP
net income to FFO.
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Stuart A. Tanz, President and Chief Executive Officer of Pan
Pacific stated, "Following our exceptionally strong results in the
first half of the year, our business continued to advance on all
fronts during the third quarter. FFO per share increased by 7.9%,
occupancy reached a new high for the year of 97.0%, same-property net
operating income grew by 3.9% and we achieved a 19.5% increase in
same-store releasing rents. We also continued to enhance our portfolio
and market presence through our acquisition and disposition program.
Year-to-date we have acquired $101.7 million of grocery-anchored
shopping centers in our strategic West Coast markets, while disposing
of $30.4 million of non-strategic property." Tanz further commented,
"We continue to proactively manage our balance sheet, maintaining a
well-laddered debt maturity schedule and limiting our floating-rate
debt. During the third quarter we issued $100 million of 10-year,
fixed-rate unsecured notes and used the proceeds to pay down our
credit line. Based on our strong financial position, we received a
rating upgrade from S&P to 'BBB+'. In summary, we are squarely on
track to achieve our stated objectives for 2005 and are building good
momentum as we head toward 2006."
FINANCIAL RESULTS
For the three months ended September 30, 2005 total Funds from
Operations (FFO) increased 7.9% to $39.5 million, compared with FFO
for the three months ended September 30, 2004 of $36.6 million. On a
per share basis, FFO increased 7.9% to $0.96 for the three months
ended September 30, 2005, compared to $0.89 for the three months ended
September 30, 2004. A reconciliation of GAAP net income to FFO is
provided at the end of this press release.
Total revenue increased 6.3% to $78.2 million for the three months
ended September 30, 2005 as compared to total revenue of $73.5 million
for the three months ended September 30, 2004.
For the three months ended September 30, 2005, income from
continuing operations was $24.8 million, or $0.61 per share, as
compared to $22.6 million, or $0.56 per share, during the third
quarter of 2004, an 8.9% increase on a per share basis. Net income for
the three months ended September 30, 2005 was $24.8 million.
At September 30, 2005, the Company's total market capitalization
was approximately $3.8 billion (based on the market closing price of
Pan Pacific's common stock on September 30, 2005, assuming the
conversion of operating subsidiary units to common stock, and total
debt outstanding). At September 30, 2005, the Company had
approximately $1.1 billion in debt outstanding, equating to a
debt-to-total market capitalization ratio of 28.3%. The Company's debt
was comprised of: $653.9 million of fixed-rate, senior unsecured notes
with a weighted average interest rate of 6.3%, and a weighted average
maturity of 6.6 years; $356.5 million of fixed-rate, mortgage debt
with a weighted average interest rate of 7.4%, and a weighted average
maturity of 3.6 years; $57.4 million of floating-rate debt outstanding
under the Company's unsecured line of credit, which had a weighted
average interest rate of 4.5% at September 30, 2005; and $6.0 million
of floating-rate, property-level bonds bearing interest at a rate of
2.6% as of September 30, 2005.
For the quarter ended September 30, 2005, the Company's interest
coverage ratio was 3.2 to 1.0 (calculated as income from continuing
and discontinued operations, excluding gain on sale, plus
depreciation, amortization and interest expense, divided by interest
expense).
On August 16, 2005, the Board of Directors declared a regular
quarterly cash dividend of $0.59 per share. The dividend was paid on
September 15, 2005 to stockholders of record on August 26, 2005.
Subsequent to the third quarter, the Board of Directors declared a
regular quarterly cash dividend of $0.59 per share. The dividend is
payable December 15, 2005 to stockholders of record on November 23,
2005. The quarterly cash dividends equate to $2.36 per share on an
annualized basis.
OPERATING RESULTS
Leasing Activity
At September 30, 2005, the Company's portfolio was 97.0% leased to
3,525 tenants. For the three months ended September 30, 2005, the
Company executed 202 leases (new and renewed) for 658,836 square feet
of gross leasable area, and achieved a 19.5% increase over prior rents
on a same-store basis.
Same Property Operating Results
With respect to the properties owned and operated by the Company
for the entirety of both the three months ended September 30, 2005 and
2004, same property net operating income increased 3.9%.
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Same Property Operating Data
(In thousands)
Three Months Ended
September 30,
------------------------------
2005 2004
-------------- -------------
Total revenue $73,187 $71,844
Operating expenses 18,460 19,184
-------------- -------------
Operating income $54,727 $52,660 3.9%
============== ============= =========
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ACQUISITION ACTIVITY
During the third quarter the Company acquired the following two
grocery-anchored neighborhood centers within the greater Seattle
metropolitan region for a total investment of $60.0 million:
Silverdale Plaza
Silverdale Plaza is a 170,332-square-foot, grocery-anchored
community shopping center. The property is currently 100% leased,
anchored by Safeway Supermarket, Rite Aid Drugstore, Jo-Ann Fabrics &
Crafts, and Staples. The property was acquired for $33.0 million.
Jefferson Square
Jefferson Square is a 146,829-square-foot, grocery-anchored
community shopping center. The property is currently 98.4% leased,
anchored by Safeway Supermarket and Bartell Drugstore. The property
was acquired for $27.0 million.
Year-to-date the Company has invested $101.7 million in acquiring
five grocery-anchored shopping centers. The acquisitions were financed
through a combination of the assumption of existing debt, aggregating
$31.2 million, borrowings under the Company's $300 million unsecured
line of credit and cash flow from operations.
DISPOSITION ACTIVITY
Subsequent to the third quarter, the Company sold Southern Palms
Shopping Center located in Tempe, Arizona, for $30.4 million. The
Company utilized the proceeds from this transaction, structured as a
reverse 1031 exchange, to pay down outstanding borrowings on its
unsecured line of credit. In connection with the disposition, the
Company expects to record a gain of approximately $15 million in the
fourth quarter of 2005.
CAPITAL MARKETS ACTIVITY
Credit Rating Upgrade
In August 2005, Standard and Poor's Ratings Services upgraded the
Company's senior unsecured debt rating to 'BBB+' with a stable outlook
from a rating of 'BBB' with a stable outlook.
Senior Notes Issued
In August 2005, the Company issued $100 million aggregate
principal amount of unsecured senior notes due September 2015. The
notes bear interest at an annual fixed rate of 5.25%. The Company
utilized the proceeds from the issuance to pay down outstanding
borrowings under its unsecured line of credit.
EARNINGS GUIDANCE
The Company expects fourth quarter 2005 FFO per share to be in the
range of $0.96 to $0.97. The Company has established full year 2006
FFO per share initial guidance of $3.97 to $4.01. This guidance is
based on current expectations and is forward looking.
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Q4'05 Year 2006
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Expected earnings per share (diluted) $0.69 - $0.70 $2.89 - $2.93
Add: expected depreciation and
amortization $0.26 $1.04
Add: expected operating subsidiary
minority interests $0.01 $0.04
Expected FFO per share diluted $0.96 - $0.97 $3.97 - $4.01
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3RD QUARTER 2005 CONFERENCE CALL
On Thursday, October 27, 2005, at 12:00 Noon Eastern Time, the
Company will be hosting a conference call to discuss its third quarter
results for 2005. The Company's remarks will be followed by a question
and answer period, which will be limited to questions from analysts.
Interested parties may participate in this conference call by dialing
877-407-9210. A taped replay of the call will be available through
November 27, 2005 at 877-660-6853, pass code 286, confirmation 169132.
A live web cast (listen-only mode) of the conference call will be
available at www.pprp.com via a link to www.vcall.com. An online
replay will also be available through November 27, 2005.
ABOUT PAN PACIFIC RETAIL PROPERTIES
Pan Pacific Retail Properties, Inc. is an equity real estate
investment trust (REIT) traded on the New York Stock Exchange under
the symbol PNP. The Company is the largest neighborhood shopping
center REIT focused exclusively on the West Coast. Pan Pacific's
portfolio currently totals 137 properties, encompassing approximately
22.3 million square feet of retail space. The portfolio is principally
diversified across five distinct regions in the Western United States:
Northern California, Southern California, Washington, Oregon and
Nevada.
Pan Pacific specializes in the acquisition, ownership and
management of community and neighborhood shopping centers for everyday
essentials. The Company's strategy is aimed at generating long-term
stable cash flow through maintaining a diverse portfolio and tenant
base, balanced with consistent growth through its acquisition and
property management programs.
Pan Pacific is headquartered in Vista (San Diego), California, and
has regional offices located in Sacramento, California; Kent,
Washington; Portland, Oregon; and Las Vegas, Nevada.
Additional information on Pan Pacific is available on the
Company's web site at www.pprp.com.
(Note: Certain matters discussed within this press release,
including, without limitation, our earnings guidance, are
forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 which reflect management's
current views with respect to future events and financial performance.
Forward-looking statements are subject to risks and uncertainties.
Factors that could cause actual results to differ materially from
expectations include market valuations of our stock, financial
performance and operations of our shopping centers, real estate market
conditions, execution of shopping center development programs,
successful completion of renovations, completion of pending
acquisitions and dispositions, including the completion of customary
due diligence and closing conditions, the Company's ability to
successfully integrate acquired assets, changes in the availability of
additional acquisition and disposition opportunities, changes in local
or national economic conditions, acts of terrorism or war and other
risks detailed from time to time in reports filed with the Securities
and Exchange Commission, including the Company's Annual Report on Form
10-K for the year ended December 31, 2004.)
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Consolidated Balance Sheets
(In thousands)
September 30, December 31,
2005 2004
---------------- --------------
(unaudited)
ASSETS:
Properties, at cost:
Land $ 572,972 $ 549,722
Buildings and improvements 1,553,348 1,482,118
Tenant improvements 66,338 60,472
---------- ----------
2,192,658 2,092,312
Less accumulated depreciation
and amortization (230,427) (200,181)
---------- ----------
1,962,231 1,892,131
Investments in unconsolidated
entity 1,391 1,387
Cash and cash equivalents 5,693 2,411
Accounts receivable (net of
allowance for doubtful accounts of
$2,085 and $3,892, respectively) 8,835 11,853
Accrued rent receivable (net of
allowance for doubtful accounts of
$3,654 and $3,306, respectively) 28,222 25,936
Notes receivable 2,630 7,511
Deferred lease commissions (net of
accumulated amortization of $9,511
and $7,808, respectively) 15,912 14,188
Prepaid expenses 21,072 19,835
Other assets 27,407 20,192
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$2,073,393 $1,995,444
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LIABILITIES AND STOCKHOLDERS' EQUITY:
Notes payable $ 362,470 $ 343,736
Line of credit payable 57,400 113,000
Senior notes 653,852 554,290
Accounts payable, accrued expenses
and other liabilities 47,520 39,205
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1,121,242 1,050,231
Minority interests 29,659 30,079
---------- ----------
Stockholders' equity:
Preferred stock par value $.01
per share, 30,000,000
authorized shares, no shares
issued and outstanding at
September 30, 2005 and
December 31, 2004,
respectively. - -
Common stock par value $.01 per
share, 100,000,000 authorized
shares, 40,701,053 and
40,530,415 shares issued and
outstanding, net of 1,190,999
treasury shares, at September
30, 2005 and December 31,
2004, respectively 407 405
Additional paid in capital 967,139 959,925
Deferred compensation (8,167) (7,093)
Accumulated deficit (36,887) (38,103)
---------- ----------
922,492 915,134
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$2,073,393 $1,995,444
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Consolidated Statements of Income
(in thousands, except share data)
Three Months Nine Months
Ended Ended
September 30, September 30,
----------------- ------------------
(unaudited) (unaudited)
2005 2004 2005 2004
------- ------- -------- --------
REVENUE:
Base rent $60,994 $56,192 $178,399 $163,066
Percentage rent 894 428 2,158 1,979
Recoveries from tenants 15,335 14,729 45,987 42,101
Income from unconsolidated
entities 88 76 330 348
Other 871 2,100 4,024 5,146
78,182 73,525 230,898 212,640
------- ------- -------- --------
EXPENSES:
Property operating 10,869 11,133 31,432 30,127
Property taxes 6,152 6,058 18,811 17,592
Depreciation and amortization 14,406 13,359 42,161 35,092
Interest 17,779 16,023 51,499 46,412
General and administrative 3,436 2,954 11,354 9,713
Impairment loss - 642 - 642
Other 127 138 626 2,930
52,769 50,307 155,883 142,508
------- ------- -------- --------
INCOME FROM CONTINUING
OPERATIONS BEFORE MINORITY
INTERESTS AND DISCONTINUED
OPERATIONS 25,413 23,218 75,015 70,132
Minority interests (615) (592) (1,803) (1,874)
------- ------- -------- --------
INCOME FROM CONTINUING
OPERATIONS BEFORE DISCONTINUED
OPERATIONS 24,798 22,626 73,212 68,258
Discontinued operations - 8,401 - 9,607
------- ------- -------- --------
NET INCOME $24,798 $31,027 $ 73,212 $ 77,865
======= ======= ======== ========
Basic earnings per share:
Income from continuing
operations $ 0.61 $ 0.56 $ 1.81 $ 1.70
Discontinued operations $ - $ 0.21 $ - $ 0.24
Net income $ 0.61 $ 0.77 $ 1.81 $ 1.94
Diluted earnings per share:
Income from continuing
operations $ 0.61 $ 0.56 $ 1.80 $ 1.69
Discontinued operations $ - $ 0.20 $ - $ 0.23
Net income $ 0.61 $ 0.76 $ 1.80 $ 1.92
Calculation of Funds from Operations
(unaudited)
(in thousands, except share data)
Three Months Ended Nine Months Ended
September 30, September 30,
2005 2004(a) 2005 2004(a)
----------- ----------- ----------- -----------
FUNDS FROM
OPERATIONS:
Net Income $ 24,798 $ 31,027 $ 73,212 $ 77,865
Plus
depreciation
and
amortization
expense 14,406 13,359 42,161 35,092
Plus
depreciation on
discontinued
operations - - - 155
Plus
depreciation on
unconsolidated
entities 61 60 206 179
Less corporate
FF&E
depreciation
(included
above) (101) (74) (279) (214)
Less
depreciation on
minority
interests (67) (66) (199) (197)
Plus operating
subsidiary
minority
interests 385 353 1,139 1,159
Less gain on
sale of
discontinued
operations - (8,066) - (8,245)
----------- ----------- ----------- -----------
Funds From
Operations $ 39,482 $ 36,593 $ 116,240 $ 105,794
=========== =========== =========== ===========
Funds From
Operations Per
Share $ 0.96 $ 0.89 $ 2.82 $ 2.57
Diluted Weighted
Average Shares
Outstanding 41,259,887 41,104,025 41,233,527 41,092,274
(a) For comparative purposes, amounts shown are as originally
reported. The impact of revising the amounts for Statement of
Financial Accounting Standards No. 144 has been excluded here so
that the periods can be compared without the effect of
reclassifying operating results for assets sold in subsequent
periods. Revised financial results, if applicable, can be found in
the Company's most current Form 10-Q and Form 10-K for 2004 filed
with the Securities and Exchange Commission.
The White Paper on Funds from Operations approved by the Board of
Governors of the National Association of Real Estate Investment
Trusts ("NAREIT") in April 2002 (the "White Paper") defines Funds
from Operations as net income (computed in accordance with
accounting principles generally accepted in the United States of
America, "GAAP"), excluding gains (or losses) on sales of
property, plus depreciation and amortization and after adjustments
for unconsolidated partnerships and joint ventures. We believe
that Funds from Operations (FFO) is an important supplemental
measure of operating performance for a real estate investment
trust. Because the historical cost accounting convention used for
real estate assets requires straight-line depreciation (except on
land), such accounting presentation implies that the value of real
estate assets diminishes predictably over time. Since real estate
values instead have historically risen and fallen with market
conditions, presentations of operating results for a real estate
investment trust that uses historical cost accounting for
depreciation could be less informative. The term FFO was designed
by the real estate investment trust industry to address this
issue. We compute Funds from Operations in accordance with
standards established by the White Paper. Our computation of Funds
from Operations may, however, differ from the methodology for
calculating Funds from Operations used by other equity REITs and,
therefore, may not be comparable to these other REITs. FFO does
not represent cash generated from operating activities in
accordance with GAAP, is not necessarily indicative of cash
available to fund cash needs and should not be considered as an
alternative to net income. FFO, as defined by us, may not be
comparable to similarly titled items reported by other real
estate investment trusts that do not define it exactly as the
NAREIT definition.
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